The Deal Slams the Door on Chinese Products Being Shipped Through Indonesia to the U.S. to gain the lower tariff than that imposed by President Trump on President Xi Jinping’s Regime
Indonesian President Prabowo Subianto celebrated the signing of a new trade pact with the United States with an Instagram post mentioning his “very good call” with President Donald Trump.
Prabowo, who had campaigned on expanding Indonesia’s role in global affairs, boasted, “Together, we agreed and concluded to take trade relations between Indonesia and the United States into a new era of mutual benefit between our two great nations.”
With some finer points of the agreement still being negotiated, the key provisions of this massive agreement are that Indonesia will pay the U.S. a reciprocal tariff rate of 19% (lower than any other southeast Asian nation), while eliminating all tariffs on most U.S. goods entering Indonesia.
The agreement also importantly slams the door on Chinese products being shipped through Indonesia to the U.S. to gain the lower tariff than that imposed by President Trump on President Xi Jinping’s regime.
An analysis by Trimegah Asset Management notes that existing Indonesian tariffs on 93% of U.S. goods were already under 5%, while the deal reduces the Trump-imposed 32% tariffs on Indonesian goods much more dramatically and gives Indonesia a small advantage over its Asian neighbors.
For the apparel industry, for example, the deal moves Indonesia, the sixth largest exporter to the U.S. (with a 4.9% market share) from sixth cheapest, in tariff terms, to third cheapest.
The Trimegah analysis further estimated a minimal impact on Indonesia’s gross domestic product (GDP), welfare costs, and labor adsorption impacts, but very positive impacts on inflation (plus 0.3% vs. plus 1.0% without the deal)and investment (plus 1.6% vs. plus 0.2%).
Overall, said the firm, the economic and labor market gains from the agreement far outweigh its costs.
U.S. agricultural exports to Indonesia — soybeans, wheat, cotton, and beef — will not do much harm to domestic producers and crude oil and liquefied petroleum gas imports from the U.S. are likely to remain low.
But, for Indonesia to take full advantage of the agreement, it must focus on deregulation to enable faster permitting and remove unofficial costs.
A separate analysis from the Association of Southeast Asian Nations (ASEAN) notes that Indonesia has emerged as the most favorably treated Southeast Asian country under what it called “the United States’ new protectionist trade regime.”
The archipelago nation now has the lowest negotiated tariff rate among all ASEAN economies, positioning Indonesia for near-term trade resilience and long-term competitive advantage.
The ASEAN analysis also concluded that the tariff rate gives Indonesian exporters clarity and time to adjust.
For industries like rubber, palm oil derivatives, and consumer electronics, preserving U.S. access maintains market viability, though pricing strategies and cost structures may require recalibration to absorb the tariff burden.
ASEAN also however expressed concern that the agricultural goods import commitments (a US$4.5 billion minimum) could introduce competitive pressure on local producers that will require transitional policies from the Indonesian government to protect small and medium-sized enterprises (SMEs) and ensure stable domestic pricing.
But, they added, the agreement ultimately signals Indonesia’s capacity to engage in strategic trade alignment while safeguarding its broader economic goals.
The agreement also presses Indonesia to expedite modernization — a key Prabowo priority.
One key area in need of upgrades is enhancing customs enforcement capacity, likely by expanding the use of existing digital clearance systems and deploying risk-based verification tools at key international ports (such as Tanjung Priok and Batam).
The directorate general of customs and excise is also likely to adopt selective inspections, data analytics, and origin validation protocols to satisfy U.S. compliance expectations.
The challenge for Indonesia’s fast-growing economy is nonetheless to protect its reputation, given the scale and complexity of its port structure and the volume of containerized trade.
If oversight is inconsistent or if customs coordination proves weak (or corrupted), Indonesia risks reputational harm that could include reactivation of punitive tariffs, as provided for in the agreement.
Under Prabowo’s close watch, however, that outcome is unlikely.
Given President Prabowo’s interest in elevating Indonesia’s national security, the provisions that include purchase of 50 Boeing aircraft and US$15 billion in U.S. energy imports are likely to be a net plus — provided (as noted by Lili Yan Ing of Project Syndicate) that Boeing has fully addressed its quality and safety issues.
Yan speculates that Indonesia may be the first nation to regret signing the U.S. trade deal despite the near-term stability it provides — a far cry from the extreme tariffs President Trump has imposed on China.
In her view, the chief concern is potential impacts on Indonesia’s trade relationships with other nations — notably Australia, China, India, Japan, New Zealand, and South Korea — and possibly even the European Union and the United Arab Emirates (UAE).
She argues that granting U.S. firms preferential treatment and zero-tariff market access might be seen as an obstruction to fair competition by those nations — who may demand comparable terms.
Further, she says, the agreement risks eroding Indonesia’s “carefully maintained strategic neutrality,” as the Chinese may be offended by a perceived “lurch” toward the U.S. even as China-Indonesia trade has more than doubled over the past decade.
More likely is that the Chinese will realize that President Prabowo is no pushover, given that he and Trump personally hashed out key details of the agreement. Prabowo spokesperson Hasan Nashi saw the deal as the outcome of “an extraordinary struggle by our negotiating team led by the Coordinating Minister for Economic Affairs.”
Echoing the deal as a net positive for both nations, economist Myrdal Gunarto of Maybank Indonesia said it “opens more space for a lower domestic monetary policy rate” and is likely to trigger capital inflows. Notably, Indonesia’s stock index rose by up to 0.7% the day after the deal was announced — a positive catalyst for economic activities.
Duggan Flanakin worked for Barry Goldwater, and has written for the Washington Free Press, and Christian Restoration Ministries. He’s also edited environmental policy newsletters. A senior fellow at the Texas Public Policy Foundation, he is also a policy analyst for CFACT (Committee for a Constructive Tomorrow). Additionally, Mr. Flanakin is a poet, music promoter, and Sunday school teacher. Read Flanakin’s reports — More Here.
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